GUEST POST – Amazon Still Can Win In China, For It Is Not Alibaba
Bottom Line: Despite strong competition, e-commerce giant Amazon stands a chance of success in China by leveraging its unique strength supported by its global logistic system and trusted brand.
By Lu Jin
Even as numerous buyers and sellers in China created another record online shopping spree in the virtual malls of Alibaba (NYSE: BABA) on Double Eleven day last week, global e-commerce giant Amazon (Nasdaq: AMZN) also did something new: It launched its Chinese language online store offering imported goods, called “shop overseas”.
Voices were heard in the market in no time: “Here comes the wolf!”
Just how bad is this “wolf”, or is the wolf really even coming?
Amazon does have some clear, unique advantages that the competitors don’t. The reality is that Chinese consumers have been able to buy goods from overseas for a long time, including from Alibaba’s Tmall and its rivals. The key difference is, Amazon offers more than just a platform, by providing its own logistics system and after-sales local support.
Is there anything special you can buy there? Well, not really. But those who like to shop on Amazon.cn will find that “shop overseas” contains many ordinary goods readily available to US customers, such as baby-care and healthcare products. Thus Chinese moms and moms-to-be will no longer need to ask around among friends in the States to buy stuff for their kids. And they can absolutely trust the products they buy, because they are from America with assured quality and authenticity.
Is it cheap, or cheaper to shop overseas from Amazon? With most products marked at the same price as the US, Chinese consumers may actually pay less due to fewer intermediaries and final import tariffs that may be actually lower than the ones Amazon already plans to may pay on each shopper’s behalf.
Amazon is currently facing pressures from both business and regulatory forces in China. It has only managed to win about a single percent of overall market share despite being in China for a decade, far less than the 75 percent combined share of Alibaba’s Taobao and TMall, or even the competing JD.com’s (Nasdaq: JD) 8.4 percent.
There is also a lot of pressure from investors. It isn’t known exactly how much Amazon has invested in China, but given its 10 operation centers and several thousand of employees, the cost is obviously huge. Some analyst even said it is time for Amazon to withdraw from China as it is losing as much as $600 million a year now.
In China, regulatory risks are real and imminent. While the new focus on overseas goods is likely to change the competition in e-commerce from prices to strength in logistics and variety of goods, some experts say it will also result in new regulations governing shopping on foreign websites.
Despite the challenges, Amazon has a lot of potential to succeed. Despite reports early this month saying the company might consider a withdrawal from China due to unfavorable market conditions, an actual departure doesn’t seem likely at least for now.
Alibaba has been successful in China because it connected buyers and sellers together in a Chinese way. But Amazon is not Alibaba, and doesn’t need to become one to succeed in China. This is simply because Amazon has many things that Alibaba and its Chinese peers can’t offer. And Amazon looks on track.
At present, the “shop overseas” categories still are not large in quantity. But the site looks good for Chinese parents, especially those interested in foreign clothing, toys, and children’s items that enjoy a perception as safer than Chinese goods.
Amazon also adds value. Just last week Amazon China released the results of a survey on the most favored travel destinations among Chinese consumers, leveraging on its unique strengths in book selling.
Amazon has also developed operations in the pioneering Shanghai Free Trade Zone (FTZ) by setting up logistic and warehouse centers. If Amazon can sort out ways to further smoothen the process of customs clearance and taxation, it could provide a huge boost for its overseas shopping business.
Lu Jin is a public affairs and strategic communications consultant at Fortune China Public Relations in Beijing. He can be reached at jin.lu@outlook.com or via LinkedIn at http://cn.linkedin.com/pub/lu-jin/18/a77/a84/.
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